FIN-EN -Sharing Methodologies on Financial Engineering for Enterprises
Lisbon Meeting, 26 September 2013
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CONTENTS
Main factors which led to the launch of PME Investe I & II
Description of this Financial Engineering Instrument
Monitoring procedures
Results
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Economic context in 2008 is, necessarily, related to the crisis in the international financial markets.
Some relevant facts:
 Sub-prime crisis in the USA which rapidly spread to other economies
 Euribor Rates rose to historical high levels
 Increase in the cost and shortage of lending to households and companies
 Increase in the price of raw materials as a result of the rising cost of petroleum
 Cooling down of the Economies
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9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Historical Evolution of the 3 month Euribor Rate
6%
5%
4%
3%
2%
1%
0%
2004 2005 2006 2007 2008 2009 2010 2011
EURIBOR 3M
2012 2013
Interest Rate on new operations up to 1 M€
Interest Rate
Portugal, loans up to
1 M€ (*)
Interest Rate Euro
Zone, loans up to 1
M€
2008 2009 2010 2011
(*) Source: Statistical Bulletin of July 2013 – Bank of Portugal
Euribor Rates reached their peak in October 2008, reflecting liquidity problems and lack of confidence in the financial sector.
On average, during 2008,
Portuguese companies paid an interest rate of 7.64% on loans up to the amount of 1 M€, higher than the rates in Euro zone by approximately 170 basis points.
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Main factors which led to the launch of PME Investe I & II
Description of this Financial Engineering Instrument
Monitoring procedures
Results
5

&
In a highly unstable macroeconomic environment, with strong constraints in accessing to credit, as well as high associated costs of financing, two Credit Lines were launched, co-financed by
Structural Funds, to support Portuguese SMEs.
PME Investe I Credit Line
 Amount of Credit: 750 M€
 Start: July/2008
 Closing: January/2009
PME Investe II Credit Line
 Amount of Credit : 1.000 M€
Generalist Sub Line: 750 M€
Trade Sub Line: 200 M€
Restaurants Sub Line 50 M€
 Start: October/2008
 Closing: May/2011
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The Portuguese Government invited Banks operating in Portugal to join this initiative, through the signature of an Agreement also subscribed to by the Managing Authorities of COMPETE and
Regional Operational Programmes for Lisbon and Algarve, and the Mutual Guarantee Societies, establishing the conditions for these Credit Lines:
 Linha de Crédito PME Investe I
 Types of financing and loans conditions
 Decision and contract process
 Procedures of reporting and monitoring
 Default and penalties
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Banks are responsible for:
 Validating eligibility conditions
 Assuring front office services during the settlement of credit and mutual guarantee agreements
 Monitoring the investments made by companies
 Providing information to PME Investimentos on the credit loans (contract, disbursement, interest rates, early repayments) and defaults
PME Investimentos, as the Credit Lines management entity, is responsible for:
 Ensuring that the Credit Lines amounts set by the Managing Authorities are not exceeded.
 Calculating the amount of public aid granted to companies and registering it in Central Register of de minimis
Aid
 Representing the Managing Authorities when communicating with Banks and MGS
 Promoting verifications in order to check eligibility conditions and the investments made by companies
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Managing
Authorities
Contribution of funds to
FINOVA
1
PME
Investimentos
2
Contributions to Mutual Counter
Guarantee Fund Capital
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Payment of subsidised interest and guarantee fees
Mutual Guarantee
System
4
3
Counter guarantee of
80% of the guarantee
Provide a guarantee for 50% of the financing
SME’s
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The bank transfers the funds to the company and then the company repays the loan in accordance with the terms agreed
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 Competitive Interest Rates
Lower than the market average rates
 Benefiting from a Mutual Guarantee
Easier access to credit as a result of sharing risk between Banks and MGS
 Subsidised Interest Rates
Interest is partially subsidized
 Guarantee Fees are fully subsidized
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 Micro, Small or Medium Enterprises
 Location – company’s head office in Mainland Portugal
 Company’s activity in line with SAFPRI (FEI national regulation)
 No prior unjustified incidents or defaults with banks
 All contributions to the Tax Administration or Social Security have been settled
 Companies benefiting from PME Investe I Credit Line could not apply for Credit Line PME Investe II
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Eligible
 Investment in new tangible or intangible fixed assets and investment in working capital related to the increase in activity
Not eligible
 Acquisition of land, real-estate, vehicles and second-hand goods
 Financial restructuring and/or debt consolidation
 Operations excluded by the SAFPRI (FEI national regulation)
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PME
Investimentos
3
Application
Approval
Maximum
3 business days
2
Approval of the guarantee
Maximum
7 business days
4
1
Credit Request
Settlement of credit and guarantee agreements
Maximum
30 business days
SME’s
5
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Maximum amount per company
Interest rate to be paid by the company
Maturity
(2) Grace
Period
(2)
Disbursement
Period
(2)
Guarantee
(2)
Credit Line I PME Líder – 1,500,000 €
Others – 1,000,000 €
Euribor 3M – 1.25%
(1)
PME Líder
5 years
Credit Line II Generalist PME Líder – 1,000,000 €
Others – 750,000 €
Credit Line II Restaurants 200,000€
Euribor 3M – 0.50%
(1)
Credit Line II Trade
PME Leader – 300,000 €
Others – 250,000 €
Others
4 years
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Months
6 Months 50%
(1) Minimum rate of 1.5%
(2) Maximum Limits
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Company Rating
PME Líder
Other companies:
Rating A
Rating B
Rating C
Net Debt / EBIDTA
(number of years ) others
Equity Ratio
Trade and Services
Specific methodology
≤ 3
3 a 5
≥ 5
≥ 30%
20 a 30%
≤ 20%
≥ 20%
15 a 20%
≤ 15%
Example
Company from the Industrial Sector
Equity Ratio 35% - Rating A
Net Debt/ EBITDA: 4 years – Rating B
Thus, the company is rated as having a
B risk level.
The risk level of the company takes into consideration the Equity ratio and the Net Debt/EBITDA ratio and classifies the company accordingly with the lowest rating observed for each of them.
PME Líder rating has its own methodology and is a label issued by IAPMEI, under proposal of Banks, recognizing the quality of companies performance, growth and risk profile.
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9,00%
7,50%
6,00%
4,50%
3,00%
1,50%
0,00%
Spreads and Guarantee Fees
Risk Level
Overall Spread
(50% SGM)
Guarantee fees
PME Líder
Rating A
Rating B
Rating C
1,250%
1,375%
1,500%
1,875%
0,625%
0,750%
1,125%
1,750%
Gap between interest rates
Interest Rate
Portugal, loans up to
1 M€ (*)
Credit Line I and II, interest rate paid by the company
2008 2009 2010
(*) Source: Statistical Bulletin July 2013 - Bank of Portugal
2011
The Credit Lines rates are quite attractive compared to the market, reflecting the impact of the subsidies granted and the effect of negotiating with Banks, which includes providing a mutual guarantee.
Companies pay the 3 month
Euribor rate, deducted by 1.25% and 0.5%, respectively, for Credit
Lines I and II, with a floor, which at the end of January 2009, was reduced from 3% to 1.5%.
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Main factors which led to the launch of PME Investe I & II
Description of this Financial Engineering Instrument
Monitoring procedures
Results
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Procedures for the reporting of information by Banks and MGS were established, allowing
PME Investimentos, as managing entity of the Credit Lines, to undertake a number of control procedures during the life of the credit loans.
Regular Procedures
 Validation of contract information
 Validation of disbursements
 Validation of interest grants
 Validation of guarantee fees
Additional Procedures
 Validate eligibility of final recipients and investments made
 Monitoring defaults
 Monitoring counter guarantees issued
 Monitoring called on guarantees
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Main factors which led to the launch of PME Investe I & II
Description of this Financial Engineering Instrument
Monitoring procedures
Results
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1.535 M€
4.508
53% Small companies
42% Northern Region
44% Industrial Sector
Average operation amount 340 k€
Average maturity 4.4 years
62% Investment in Fixed Assets
Average number of employees 36
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Public
Investment
138 M€
Guarantees
MGS
Counter guarantees
MCGF
Credit Loans
Investment
Multiplier Effect
11 X
Companies 4.443
Employment 160.000
Leverage information is based on updated costs estimate.
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2008 2009 2010 2012 2013
PME Investe I
PME Investe II
PME Investe III
PME Investe IV
2008
1.267 M €
2009
4.821 M €
2010
7.690 M €
2011
8.221 M €
Total Credit Transaction
PME Investe V
PME Investe VI
QREN Investe
PME Investe - Aditamento
PME Crescimento
2012
9.777 M €
June
2013
10.583 M €
PME Crescimento 2013
Since 2009, the Portuguese
Government has launched new subsidised and guaranteed Credit Lines, under the management of
PME Investimentos, exclusively financed through national funds. By the end of June 2013, these Credit
Lines reached 62,000 companies, responsible for approximately 850,000 jobs.
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(+351) 21 799 42 74
(+351) 21 799 42 75
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